U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file Number 0-22062
STANLY CAPITAL CORP
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1814206
(State of incorporation) (I.R.S Employer Identification No.)
167 North Second Street
Albemarle, North Carolina 28001
(Address of principal executive offices)
Issuer's telephone number, including area code: (704) 983-6181
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Title of Each Class Outstanding at July 15, 1996
Common stock, par value $1.25 per share 2,119,483 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
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STANLY CAPITAL CORP AND SUBSIDIARY
FORM 10-QSB
TABLE OF CONTENTS
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PAGE
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PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets, June 30, 1996 and 1995 (Unaudited) 3
Consolidated Statements of Income for the Three and the Six Months
Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Changes in Shareholders' Equity for the
Six Months Ended June 30, 1996 and 1995 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Balance Sheets (Unaudited)
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(In Thousands) June 30,
1996 1995
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,622 $ 4,035
Securities available for sale:
U.S. Treasury securities 4,937 8,001
U.S. Government Agency/Mortgage-backed securities 10,391 9,638
Municipal securities 5,747 6,050
Other securities 1,346 494
---------------- ----------------
Total securities 22,421 24,183
---------------- ----------------
Loans 96,402 81,569
Less: Allowance for loan losses 1,036 934
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Loans, net 95,366 80,635
---------------- ----------------
Premises and equipment, net 2,122 2,092
Interest receivable 853 821
Other assets 1,260 1,339
---------------- ----------------
Total assets $ 126,644 $ 113,105
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,354 $ 9,538
Money market and NOW accounts 21,977 23,009
Savings deposits 27,093 18,802
Time deposits $100,000 and over 6,123 8,291
Other time deposits 33,012 33,261
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Total deposits 100,559 92,901
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Federal funds purchased - 3,200
Securities sold under repurchase agreements 6,422 -
Other borrowings 8,075 6,075
Interest payable 182 143
Other liabilities 342 145
---------------- ----------------
Total liabilities 115,580 102,464
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Shareholders' equity:
Common stock, par value $1.25 per share;
authorized 6,000,000; issued and outstanding:
2,121,081 shares at June 30, 1996
2,078,870 shares at June 30, 1995 2,651 2,599
Surplus 4,330 4,226
Undivided profits 3,890 3,546
Unrealized gain (loss) on securities available for sale, net
of related tax effect 193 270
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Total shareholders' equity 11,064 10,641
---------------- ----------------
Total liabilities and shareholders' equity $ 126,644 $ 113,105
================ ================
</TABLE>
See Notes to Consolidated Financial Statements
3
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(In Thousands)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 2,095 $ 1,811 $ 4,114 $ 3,513
Interest on securities:
U.S. Treasury securities 98 112 200 226
U.S. Government agencies and
mortgage-backed securities 182 157 350 318
Other securities 99 105 205 205
Interest on federal funds sold 1 1 22 6
------------ ------------- ------------ -------------
Total interest income 2,475 2,186 4,891 4,268
INTEREST EXPENSE:
Interest on deposits and borrowed funds 1,116 983 2,224 1,904
------------ ------------- ------------ -------------
NET INTEREST INCOME 1,359 1,203 2,667 2,364
Provision for Loan Losses 52 - 87 17
------------ ------------- ------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,307 1,203 2,580 2,347
------------ ------------- ------------ -------------
NONINTEREST INCOME:
Service charges on deposit accounts 223 175 447 350
Other service fees and commissions 105 88 204 199
Gain (loss) on sale of securities (1) - 18 58
Gain (loss) on foreclosed real estate - 4 - (31)
Other income 10 4 21 23
------------ ------------- ------------ -------------
Total noninterest income 337 271 690 599
------------ ------------- ------------ -------------
NONINTEREST EXPENSE:
Salaries, wages and employee benefits 628 553 1,219 1,080
Occupancy expenses 53 47 107 90
Equipment expense 97 61 191 118
Professional fees 65 61 125 118
FDIC insurance - 49 1 99
Data processing 124 143 251 277
Stationery, printing and supplies 35 36 67 72
Advertising and business promotion 63 42 99 80
Other expenses 222 236 445 500
------------ ------------- ------------ -------------
Total noninterest expense 1,287 1,228 2,505 2,434
------------ ------------- ------------ -------------
INCOME BEFORE INCOME TAXES 357 246 765 512
Provision for Income Taxes 119 49 243 97
------------ ------------- ------------ -------------
NET INCOME $ 238 $ 197 $ 522 $ 415
============ ============= ============ =============
Earnings Per Share $ .11 $ .10 $ .24 $ .20
Shares used in computing net income per share 2,121,081 2,078,870 2,121,081 2,078,870
</TABLE>
See Notes to Consolidated Financial Statements.
4
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For The Six Months Ended June 30, 1996 and 1995 (Unaudited)
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Net
Unrealized Gain
(In Thousands) Common Undivided (Loss) on Securities
Stock Surplus Profits Available for Sale
--------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 2,644 $ 4,375 $ 3,131 $ (426)
Repurchase of common stock (45) (149) - -
Net income - - 415 -
Net increase in market value of
securities available for sale - - - 696
--------------- --------------- --------------- ----------------
Balance, June 30, 1995 $ 2,599 $ 4,226 $ 3,546 $ 270
=============== =============== =============== ================
- - ----------------------------------------------- --------------- ----- --------------- --- --------------- ---- ----------------
Balance, December 31, 1995 $ 2,654 $ 4,376 $ 3,368 $ 513
Repurchase of common stock (20) (77) - -
Stock options exercised 17 31 - -
Net income - - 522 -
Net decrease in market value of
securities available for sale - - - (320)
--------------- --------------- --------------- -----------------
Balance, June 30, 1996 $ 2,651 $ 4,330 $ 3,890 $ 193
=============== =============== =============== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
5
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(In Thousands)
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 522 $ 415
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 116 67
Amortization (accretion) of security premiums and discounts, net (18) (14)
Provision for loan losses 87 17
Deferred income taxes - 182
Gain on sale of securities (18) (58)
Loss on foreclosed properties - 31
Changes in assets and liabilities:
Interest receivable 13 (10)
Other assets (30) 434
Interest payable 17 (4)
Other liabilities 21 27
---------------- ---------------
Net cash provided by operating activities 710 1,087
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 4,701 8,308
Purchase of securities available for sale (4,499) (7,896)
Proceeds from sales of (additions to) foreclosed properties (51) 25
Net (increase) decrease in loans (5,480) (1,337)
Capital expenditures (141) (75)
--------------- ---------------
Net cash provided by (used in) investing activities (5,470) (975)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW and savings accounts 3,474 (761)
Net increase in time deposits 1,291 427
Net increase in securities sold under repurchase agreements 1,960 -
Net increase (decrease) in federal funds (2,850) 900
Net increase (decrease) in other borrowings/note payable 2,102 (525)
Proceeds from issuance of common stock 48 -
Repurchases of common stock (97) (194)
--------------- ---------------
Net cash provided by (used in) financing activities 5,928 (153)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,168 (41)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,454 4,076
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,622 $ 4,035
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 2,206 $ 1,908
Income taxes paid $ 274 $ -
Transfers from loans to OREO $ 51 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
6
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STANLY CAPITAL CORP AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies
The financial statements and accompanying notes are presented on a consolidated
basis including Stanly Capital Corp (the "Company"), it's Subsidiary, Bank of
Stanly ("the Bank") and the Bank's subsidiaries. Bank of Stanly consolidates the
Strategic Alliance Corporation and BOS Agency, Inc. each of which are
wholly-owned by the Bank.
The information contained in the consolidated financial statements is unaudited.
In the opinion of management, the consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and all
material adjustments necessary for a fair presentation of results of interim
periods have been made. The results of operations for the interim periods are
not necessarily indicative of the results which may be expected for an entire
year. Management is not aware of economic events, outside influences or changes
in concentrations of business that would require additional clarification or
disclosure in the consolidated financial statements. Certain prior period
amounts have been reclassified to conform to current period classifications.
Note 2 - Loans
Loans outstanding at period end:
<TABLE>
<CAPTION>
June 30,
(In Thousands) 1996 1995
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<S> <C> <C>
Real estate loans $ 72,734 $ 62,711
Commercial and industrial 13,604 9,967
Loans to individuals for household, family and other
consumer expenditures 10,024 8,811
All other loans 40 80
---------------- ----------------
Total $ 96,402 $ 81,569
================ ================
</TABLE>
Summary of transactions in the allowance for loan losses for the six-month
periods ended:
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<CAPTION>
June 30,
(In Thousands) 1996 1995
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<S> <C> <C>
Beginning balance $ 975 $ 922
Charge-offs:
Commercial loans - -
Consumer loans 33 18
Real estate loans - -
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Gross charge-offs 33 18
--------------- ----------------
Recoveries:
Commercial loans - -
Consumer loans 7 13
Real estate loans - -
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Gross recoveries 7 13
--------------- ----------------
Net charge-offs 26 5
Provision for loan losses 87 17
--------------- ----------------
Ending balance $ 1,036 $ 934
=============== ================
Percentage of gross loans 1.07% 1.15%
Ratio of net charge-offs to average loans during the period .03% .00%
</TABLE>
7
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Note 3 - Standby Letters of Credit
At June 30, 1996 and 1995 the Company had outstanding letters of credit totaling
$439 thousand and $418 thousand, respectively.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Stanly Capital Corp, (the Company) was incorporated under the laws of the State
of North Carolina as a one bank holding company for Bank of Stanly (the Bank) in
July 1993. The Bank was incorporated in 1983 and since commencement of its
operations in January 1984, has engaged in the retail and commercial banking
business through its five offices located in Stanly County, North Carolina.
The Bank competes with five other commercial banks, a savings bank and a credit
union in its service area, primarily for lending activities and deposit
customers. The Bank enjoys a good reputation as a community focused financial
institution, and has been successful in achieving substantial growth in a market
that has not displayed a significant amount of growth potential.
Stanly Capital Corp reported a quarter of strong growth and good operating
results. Net income of $238 thousand for the second quarter of 1996, represents
earnings per share of $.11 and reflects a 20.8% increase over earnings for the
same period of 1995, which totaled $197 thousand or $.10 per share. Key factors
affecting the improved earnings experienced this period were increases in net
interest income due primarily to growth in the loan portfolio, higher revenues
from non interest income and relatively low increase in overhead expense.
Results of operations and the Company's financial condition are presented in the
following narrative and incorporated tables. References to changes in assets and
liabilities represent end of period balances unless otherwise noted.
Net Interest Income
The largest contributor to earnings, net interest income was up $156 thousand or
13.0% for the three months ended June 30, 1996 compared to the same period a
year earlier, due primarily to the growth in the loan portfolio.
Income on loans of $2.0 million for the three month period, reflected an
improvement of 15.7% over the earnings of $1.8 million during the same period in
1995. Investment securities produced essentially the same level of earnings in
1996 and 1995.
Sources of funds composed of deposits, securities sold under repurchase
agreements, federal funds purchased and borrowed funds expanded $12.9 million
comparing these periods providing funding for the interest-earning asset growth,
primarily loans. Associated interest expense rose $133 thousand, or 13.5%, when
comparing the three months due mainly to the higher levels of interest-bearing
liabilities.
8
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The following chart reflects average interest-earning assets and
interest-bearing liabilities, associated income or expense, related rates and
the net interest spread for the six month periods ended June 30, 1996 and 1995.
Rate/Yield Spread Table on Tax Equivalent Basis *
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Average Level Income/Expense Rate/Yield
($ in thousands) 1996 1995 1996 1995 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 93,441 $ 79,097 $ 4,114 $ 3,513 8.85% 8.96%
Securities 24,294 24,239 867 843 7.18% 7.01%
Federal funds sold 869 207 22 6 5.09% 5.85%
-------- -------- -------- -------- ---- ----
Total interest-earning assets 118,604 103,543 5,003 4,362 8.48% 8.50%
-------- -------- -------- -------- ---- ----
Interest-bearing liabilities:
Interest-bearing deposits 88,772 82,422 1,834 1,642 4.15% 4.02%
Short-term borrowings 7,077 1,893 165 53 4.69% 5.65%
Long-term borrowings 7,053 6,294 226 209 6.44% 6.70%
-------- -------- -------- -------- ---- ----
Total interest-bearing
liabilities 102,902 90,609 2,225 1,904 4.35% 4.24%
-------- -------- -------- -------- ---- ----
Net interest spread $ 15,702 $ 12,934 $ 2,778 $ 2,458 4.13% 4.26%
======== ======== ======== ======== ==== ====
</TABLE>
* An effective tax rate of 35% for 1996 and 1995 was used to adjust to a fully
tax-equivalent basis.
Nonperforming Assets
Nonperforming assets were $411 thousand at June 30, 1996, a slight improvement
over 1995. This is reflective of the Company's ongoing commitment to maintaining
asset quality.
Detail of nonperforming assets is presented below:
(In Thousands) June 30,
1996 1995
--------------- ---------------
Nonaccrual loans:
Commercial $ - $ -
Real estate 269 159
Consumer installment 6 7
--------------- ---------------
Total nonaccrual loans 275 166
Other real estate owned, net 136 304
--------------- ---------------
Total nonperforming assets $ 411 $ 470
=============== ===============
Nonperforming assets as a percentage
Total assets .32% .42%
Total loans .43% .58%
9
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Provision and Allowance for Loan Losses
The Company uses a rating method to determine an adequate level of provision for
loan losses which additionally provides early detection of problem loans. This
identification process begins with management's assessment of credit reviews,
payment histories of borrowers, loan-to-value ratio, and identified weakness in
the credit. The loans are graded and management establishes a standard
percentage to reserve for each rating. Included in the calculation are loans
previously identified by examiners as loss, doubtful or substandard.
Charge-offs, net of recoveries, for the first six months of 1996 totaled $26
thousand, reflecting a very low ratio to average loans of .03%.
Due to substantial loan growth, the allowance for loan loss has increased.
During the six month period $87 thousand in loan loss provision expense was
recognized, compared to $17 thousand in this period in 1995. The transactions in
the allowance for loan losses are summarized in Note 2 to the consolidated
financial statements.
Noninterest Income and Expense
Total noninterest income for the three months ended June 30, 1996 and 1995 was
$337 thousand and $271 thousand, respectively, reflecting an increase of $66
thousand or 24.4%. This improvement can be primarily attributed to an increase
in service charges on deposit accounts which contributed an additional $48
thousand in earnings, an increase of 27.4% due to new products, repricing of
fees and growth in deposit accounts.
For this same period, noninterest expenses increased by $59 thousand or 4.8%.
Salaries and benefits, the largest component of noninterest expense, increased
by $75 thousand due to the cost of additional personnel, normal salary
adjustments and associated higher benefit costs. All other expenses as a group
decreased by $16 thousand when comparing results of the second quarter of 1996
to the same three month period of 1995. The decrease in cost of FDIC insurance
contributed to this reduction.
Income Tax Expense
Income taxes computed at the statutory rate are reduced primarily by the
eligible amount of interest earned on state and municipal securities. Income tax
expense calculated to date in 1996 totals $243 thousand, an effective tax rate
of 31.8% compared to $97 thousand in 1995, reflecting an effective rate of 18.9%
of pretax income. The Company experienced some tax benefit in 1995 from the
recognition of securities losses posted in the fourth quarter of 1994.
Financial Condition and Capital Ratios
As of June 30, 1996 total assets exceeded $126 million an improvement of 12.0%
over June 30, 1995. The Company has experienced outstanding growth of 18.2% in
loans which increased from $81.6 million at June 30, 1995 to $96.4 million on
June 30, 1996. Asset quality remains good as evidenced by current past due loan
percentages, loan loss experience and management rating of the loan portfolio.
The Bank continues to maintain strong capital ratios that will support
additional asset growth. As of June 30, 1996, the leverage ratio calculated with
Tier I capital as a percentage of total assets plus the loan loss reserve was
8.51%, which compares favorably to the regulatory capital requirement. Total
capital to risk weighted assets was 14.2% at June 30, 1996.
10
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Liquidity
Liquidity, the ability to raise cash when needed without adversely impacting
profits, is managed primarily by the selection of asset mix and the maturity mix
of liabilities. Maturities and the marketability of securities and other funding
sources provide a source of liquidity to meet deposit withdrawals.
Other funding sources currently include $9 million in federal funds lines of
credit from correspondent banks and a $21 million line of credit from the
Federal Home Loan Bank, less current advance levels of borrowing from these
sources of $8.1 million. Growth in deposits is typically the primary source of
funding for loans, supported by long-term credit available from the Federal Home
Loan Bank.
Interest Rate Sensitivity
The major component of income for Stanly Capital Corp is net interest income,
the difference between yield earned on assets and interest paid on liabilities.
This differential (or margin) can vary over time as changes in interest rates
occur. The volatility of changes in this differential can be measured by the
timing (or repricing) difference between maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis which
reflects the difference or gap between rate sensitive assets and liabilities
over various time periods. While Management reviews this information, it has
implemented the use of a simulation model which calculates expected net interest
income based on projected interest-earning assets, interest-bearing liabilities
and interest rates and provides a more relevant view of interest rate risk than
traditional gap tables. The simulation allows comparison of flat, rising and
falling rate scenarios to determine sensitivity of earnings to changes in
interest rates.
The Asset Liability Management Committee monitors market changes in interest
rates and assists with pricing loans and deposit products consistent with
funding source needs and asset growth projections.
PART II
OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
None
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
There were no Form 8-K's filed with the Securities and Exchange Commission
during the second quarter of 1996.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned who is thereunto duly authorized.
STANLY CAPITAL CORP
(Registrant)
Date July 23, 1996 By:
Roger L. Dick
President and Chief Executive Officer
Barbara S. Williams
Vice President-Finance
12
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